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Deferred Management Fees
A deferred management fee is an exit fee that residents pay to retirement village operators when they leave the village. This payment is often a percentage of the ingoing fee, or the sale price, and is agreed to in the contract upfront. The fee is paid to the operator when a resident vacates the village and is usually deducted from the sale price of the unit.
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The incoming fee at our village is at 75% of the each villa price to encourage affordability.
The deferred management fee structures employed by the village operator is calculated using a variety of approaches. The fees payable are dependent on the specific contract terms and are normally determined by the type of tenure and by how long a resident lives at a village.
The purpose of the deferred management fee is to cover costs incurred by the village operator to develop and maintain the village for the residents, which are not covered by recurrent charges. Such fees allow operators to offer properties at subsidized prices, making moving into a retirement village more affordable. Where there is no deferred management fee in place, those costs are covered by residents upfront, and/or via higher recurring fees, eroding disposable income in retirement.
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The deferred management fee model is the most widely used model for village operators in Australia.
The operator has a stake in maintaining and enhancing the value of the village, as the total outgoing payment to the resident is typically calculated as a percentage of the initial deposit and the sale price when the unit is resold to an incoming resident. This arrangement encourages the operator to ensure the village remains attractive, well-maintained, and in-demand.
Understanding retirement village deferred management fees is crucial for prospective residents to make informed decisions and accurately evaluate the financial implications of their retirement living choice.
What is a ‘Deferred Management Fee’?
As noted above, a deferred management fee is an exit fee that residents pay to retirement village operators when they leave the village. Retirement village operators use deferred management fees to retain part of the resale value of a retirement village unit and such fees may also cover part or all of the capital gains made from the resale of a retirement village unit. Residents are required to pay this fee to the village operator when they sell their unit and terminate their occupancy within the retirement village. Operators typically deduct the fee from the proceeds of the sale before the resident receives their share.
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A deferred management fee is a common fee structure for retirement villages. Its purpose is to lower the upfront payments for residents to move into the village. They cover costs that are incurred by the village operators to build and expand the village as well as its services and facilities that would otherwise have to be covered by the residents.
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The calculation of the deferred management fee will vary depending on the terms of the contract, which is the original purchase price.
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The fee structures associated with deferred management fees can be intricate and involve multiple components. This complexity will be handled by your accountant or our dedicated team of accountants and financial advisor upon request .
To fully grasp how the fees are calculated your can contact us for further information .Your can also speak to your accountant or financial broker to understand the financial impact they will have.
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At Beverley Retirement Village, we provide full transparency on fees including the deferred management fee.
Generally, DMF’s are calculated based on a sliding scale depending on the length of tenure within the village. The longer you have lived in the village, the higher the amount to be paid when leaving. This is capped at 30% in our villa.
The sliding scale, capped DMF structure is so Beverley residential village avoid disproportionately impacting residents who have lived in the village for shorter periods. Otherwise, they may be subject to higher fees without receiving reasonable benefits as compared to longer-term residents.
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However, on top of the standard deferred management fee, the operators will retain a further 50% portion of the capital gains from the property resale at and 50% is given to the outgoing resident.
This is in addition to the capped DMF fee and is half of capital gains made after the building has been renovated by the outgoing resident or more if not renovated, the cost of renovation will be deducted from the capital gain if renovation was not done by that resident.
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This intricate calculation is done by our team of expert accountants. This is done transparently and each financial year there is a financial report given to all resident explaining their remaining DMF and the financial state of the village for that financial year.
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